Finance Minister shoots down higher tariffs because of political situation

Finance Minister Tonio Fenech has resisted a plea made by top Enemalta and Water Services officials, to further raise utility tariffs in a bid to halt the financial haemorrhage that threatens to plunge both corporations into insolvency.

Asked directly to increase tariffs, the finance minister declined, claiming that ‘the sensitive political situation’ made it impossible to further increase bills that are already perceived to be among the highest in Europe, and which had resulted in mass anti-government protests in 2009.

The request was made by the corporations’ two chief executive officers at a meeting with the finance minister held this weekend. In their plea to Fenech, the two CEOs explained that without adjusting the tariff regime toreflected the real cost structure of energy and water production, the two corporations would continue to sink further into a bottomless financial quagmire.

Despite a commitment undertaken last July to streamline operations with a view to cutting costs, insiders talk of a growing failure to rein in runaway debts accrued by both Enemalta and WSC in recent decades.

Enemalta’s debt alone is understood to exceed €450 million, resulting in a recent downgrade by international credit agency Standard and Poor’s. Since then, the cost of producing electrical energy at the Delimara plant has increased rather than decrease, and is expected to further increment in coming years, as a result of the massive capital investment involved in reconverting the turbines as part of the ongoing power station extension.

Replying to these concerns, Tonio Fenech warned the two executives that this was not the time to increment tariffs, owing to the ‘sensitive political situation’. With budget day scheduled for next Monday (14 November), the Finance Minister is labouring to outline a financial budget for 2012 that will give respite to the middle class and the self-employed. For this reason, utility hikes are not expected to feature in the budget.

However, the reality of the financial situation at Malta’s only energy provider have long been a cause for national concern. The last time financial estimates for Enemalta were tabled in parliament was in July 2009, when it was revealed that the national energy service provider had lost €133 million in 27 months by the end of that year alone. The value of government’s shareholding had dropped by 75%, while it also emerged that over 70% of the corporation’s assets were funded by banks in loans and overdrafts, while a further 19% through creditors for supplies.

Effectively this raised the question of whether it was still possible to talk of Enemalta as a government entity at all, seeing as the government had apparently lost its majority shareholding.

The delicate financial situation of Malta’s major power and water suppliers was briefly touched upon during yesterday’s debate on a motion of confidence called by Prime Minister Lawrence Gonzi. Gonzi defended the existing tariff regime by pointing towards factors outside his government’s control: namely the international markets and the frluctuating price of oil. However, Opposition leader Joseph Muscat referred to the technology  mentioned by European Commissioner John Dalli, which could – according to Dalli – lower the existing tariff structure.

Gonzi had claimed to have a solution to lower the tariffs, Muscat added, but preferred to protect the interests of the few.